B FINANCIAL INSTRUMENTS AND MARKETS

B1 DEPOSITS

781/34
The current account balance and national saving
Central Bank of Iceland Monetary Bulletin, vol. 19, no. 2 (2017), pp. 51-54

During the pre-crisis upswing, Iceland experienced a marked increase in investment that went hand-in-hand with steadily declining
national saving. In the intervening period, however, the situation has been transformed with the saving rate rising from eight per
cent of GDP in 2008 to twenty three per cent of GDP in the following year and remaining close to that level since then. This surge
in national saving was the main factor in turning the current account deficit of 16.7 per cent of GDP in 2008 into a sizeable surplus
that has averaged six per cent of GDP since 2009. The combination of a high level of saving and the current account surplus mean
that Iceland is now well positioned to withstand any future economic instability. Moreover, if the rate of national saving is
sustained, this will put downward pressure on long-term real interest rates. (5 figures)

782/34
Household savings historically low
Bank of Finland Bulletin, no. 3 (29 June 2017), p. 1

Savings rates in Finland have been held at historically low levels for an unprecedented length of time. Indeed, savings rates have
been negative since the second half of 2014. The situation persists because of a combination of unusually low interest rates
available on savings deposits and a surge in consumer confidence that has helped to serve up sustained growth in private
consumption. This is potentially storing up trouble for the future as households accumulate debt but the situation is at least partly
offset by the knowledge that there are still no signs that the housing market is overheating. (4 figures, references)

783/34
Precautionary saving of Chinese and US households
Choi, H. et al.
Journal of Money, Credit and Banking (USA), vol. 49, no. 4 (June 2017), pp. 635-61

Household savings rates are significantly higher in China than they are in the US and explanations are sought for why this may be
the case. Savings are decomposed into precautionary and non-precautionary components, revealing that approximately eighty per
cent of household savings in China and all household savings in the US result from precautionary motives. It is found that the
difference in income growth rates between the two countries explains a large proportion of the discrepancy in savings rates.
Households have target wealth-to-income ratios and rapidly rising wages in China require households to save considerable sums if
they are to maintain the ratio. (10 tables, references)

784/34
Return on private financial assets taking into account inflation and taxes
Deutsche Bundesbank Monthly Report (Germany), vol. 69, no. 7 (July 2017), pp. 69-75

Nominal interest rates have fallen sharply and the search for yield has been widely reported but this study analyses historical data
for returns on financial assets in Germany, revealing that current returns are not dissimilar to those of the past when inflation and
taxes are taken into account. For instance, the real interest rate on short-term savings deposits has frequently been negative,
especially after tax. This was true throughout the majority of the 1980s and 1990s and the situation only improved somewhat
following a prolonged period in which inflation fell and tax rates were lowered. Meanwhile, real returns on ten-year bonds have
been on a downward trend since the early 1980s and have been in negative territory in recent years.

World Banking Abstracts, vol. 34, no. 4, 2017, Page 251

B2 LOANS

785/34
Heterogeneous mortgage markets: implications for business cycles and welfare in the EMU
Gareis, J. and Mayer, E.
German Economic Review, vol. 18, no. 2 (May 2017), pp. 133-53

This paper demonstrates the effect that discrepancies in national mortgage markets have on business cycles and welfare across a
monetary union such as the euro zone. A two-country New Keynesian DSGE model is employed with collateral constraints tied to
house prices. Changes in the characteristics of mortgage markets such as the loan-to-value ratio help to explain why national
housing markets do not move in tandem. What is more, these same mortgage market characteristics also have a significant
influence on economic activity. Countries with lenient credit standards will experience a housing market boom while countries
elsewhere in the monetary union experience a negative output gap. (2 tables, 3 figures, references)

786/34***
Banks should heed European Central Bank guidance on bad loans
Houlihan, C.
Banker, The (UK), vol. 167, no. 1097 (June 2017), p. 12

It is estimated that EU banks have €1,000 billion of non-performing loans (NPLs) on their balance sheets and the adverse effect
that this is having on profitability, bank capital and the supply of credit mean that addressing this issue must be given the highest
priority. On 20 March 2017 the European Central Bank published its final guidance on resolving NPLs. While this guidance is
non-binding, banks would be well-advised to heed the advice. The guidance calls on banks to establish an effective strategy to
reduce NPLs that focuses on both internal and external factors. Time-bound objectives and governance arrangements should make
the tackling of NPLs firmly embedded at all levels of the bank. Loan sales will be necessary to achieve the desired results within
the timeframe specified and the success of large NPL portfolio sales in 2016 and 2017 is encouraging signs.

787/34
The long story of LatAms’s infrastructure shortfall
Pavoni, S.
Banker, The (UK), vol. 167, no. 1097 (June 2017), pp. 56-58

Latin America’s annual infrastructure gap has been estimated at $180 billion. Traditionally, banks would provide long-term loans
for infrastructure projects but more onerous capital constraints mean that lenders are unwilling to retain these loans on their balance
sheets and are instead keeping project finance at shorter tenors. The situation has been compounded by the inability of national
governments to fund projects as the economy slows and promised investment by China for large-scale multi-billion dollar
infrastructure projects has failed to materialise. Any progress in this area will require the support of the private sector and this
report considers the likelihood that this will come to fruition. (1 figure)

788/34
Breaking loose
Roberts, D.
International Financial Law Review (UK), vol. 36, no. 6 (July/August 2017), pp. 67-69

Over time, the transfer provisions applied to European senior leveraged loans have become more restrictive. In practice, this means
that borrowers now benefit from greater control and transparency over the syndicate of lender creditors. If this situation continues,
it could conceivably adversely affect liquidity in the European lending market, put downward pressure on secondary market prices
and deter investors from engaging in the leveraged loan market. Therefore, it is advised that amendments should be made to the
framework so as to facilitate a greater degree of flexibility.

World Banking Abstracts, vol. 34, no. 4, 2017, Page 252

789/34
Accounting for debt service: the painful legacy of credit booms
Drehmann, M. et al.
Bank for International Settlements Working Papers, no. 645 (June 2017), pp. 1-53

When a loan is agreed, the borrower usually commits to a series of repayments at specified times. This gives rise to a lag between
credit booms and peaks in debt service. Studying data for household debt in seventeen countries, it is estimated that the duration of
this lag is approximately four years. The lag results from a combination of two factors: the auto-correlation of new lending and the
long-term nature of debt contracts. It is the delayed increase in debt service after additional borrowing is agreed that explains why
output growth is subdued following a period of sustained credit expansion. (2 tables, 15 figures, references)

790/34
Stabilizing the system of mortgage finance in the United States
Koss, R.
International Monetary Fund Working Papers, vol. 17, no. 186 (August 2017), pp. 1-30

House prices in the US have remained below their pre-crisis peak for more than a decade. In the intervening period, regulators have
been busy responding to the collapse in house prices during the credit crisis but Fannie Mae and Freddie Mac remain in
conservatorship. This regulatory approach was wholly appropriate in the immediate aftermath of the housing crisis but it is now
apparent that mortgage finance risks have been accumulating for several years. Therefore, the author calls for far-reaching changes
to the mortgage landscape in order to help stabilise the system. (19 figures, references)

791/34
How does working in a finance profession affect mortgage delinquency?
Agarwal, S. et al.
Journal of Banking and Finance (Netherlands), vol. 78 (May 2017), pp. 1-13

A detailed dataset obtained for a US subprime mortgage lender is used to confirm that financial professionals are significantly less
likely to default on their borrowings. This relationship holds even after controlling for the income of the borrower, their education,
the type of property, its geographical location, the terms contained in the mortgage agreement and the possibility of strategic
default. These findings are discussed and possible explanations are suggested for why financial professionals may be less likely to
default. (16 tables, 2 figures, references)

792/34
Financial literacy, present bias and alternative mortgage products
Journal of Banking and Finance (Netherlands), vol. 78 (May 2017), pp. 58-83

Financial innovation has given rise to a wide variety of mortgage products including interest-only mortgages. A survey of UK
mortgage holders reveals how the financial sophistication of individual borrowers affects their decision of whether to opt for an
interest-only mortgage or a conventional repayment mortgage. Those choosing an interest-only mortgage are more likely to be
financially illiterate and also susceptible to present bias. Moreover, financially literature individuals are more likely to opt for an
adjustable rate mortgage rather than a fixed rate mortgage, thereby avoiding the excessive interest rates charged on these products.
(20 tables, references)

World Banking Abstracts, vol. 34, no. 4, 2017, Page 253

B3 BONDS

793/34
ICMA publishes study into the state and evolution of the European credit repo market
Financial Regulatory Briefing (UK), (June 2017), pp. 32-33

A study conducted by the International Capital Market Association describes the state of the European corporate bond repo and
securities lending market. This includes an assessment of its role, external impacts, structure, opportunities, participants, challenges
and potential evolution. The findings reveal that the market works well although it is recognised that its capacity to function is
reliant on an ample supply of corporate bonds into the market. Supply into the European credit repo market has been satisfactory
but sourcing supply is becoming more problematical owing to the trend for smaller trade sizes and a faster turnover of dealer
positions. Regulation poses the greatest challenge: there is widespread concern that the CSDR mandatory buy-in regime will deter
lenders of corporate bonds and it is feared that the Net Stable Funding Ratio will have the effect of driving up trading costs. Be that
as it may, the study also indicates that there is scope for the market to become more efficient by automating labour-intensive
manual processes.

794/34
International or domestic?
Grünblatt, D. et al.
International Financial Law Review (UK), vol. 36, no. 6 (July/August 2017), pp. 46-50

Swiss structured covered bonds are usually issued by branches located in the UK and their rules are based on those of their English
counterparts. This enables interest payments on these bonds to be exempt from Swiss withholding tax. However, a trend is
emerging for domestic issuances of Swiss structured covered bonds lead by two notable deals by Credit Suisse and UBS. Therefore,
this article reflects on how specific structural elements of international covered bond issuances by Swiss banks could be replicated
in a domestic issuance structure.

795/34
Long-term interest rates and public debt maturity
Beetsma, R. et al.
Economica (UK), vol. 84, no. 335 (July 2017), pp. 541-58

An attempt is made to estimate the contribution that fiscal variables made to long-term interest rates in sixteen OECD countries
between 1980 and 2007. Increasing the maturity of public debt by just one year has the effect of reducing long-term interest rates
by 20-30 basis points. This relationship between the maturity of public debt and long-term rates is especially robust in countries
that have high rates of inflation and low maturity. (4 tables, 5 figures, references)

796/34
A license to issue (anywhere): patterns and drivers of corporate bonds in Latin America
Vtyurina, S. et al.
International Monetary Fund Working Papers, vol. 17, no. 157 (July 2017), pp. 1-30

Greater issuance of corporate bonds by Latin American companies has helped to diversify the funding mix but it is apparent that
the local bond markets in Argentina, Brazil, Chile, Colombia, Mexico and Peru remain relatively small and shallow by
international standards. Unbalanced panel firm and market-level indicators for the period 1995-2015 are used to reveal the factors
that determine whether a firm will choose to issue bonds in the local market or opt for an external market. A company’s size and
liquidity both have a significant bearing on the likelihood of issuing bonds externally. Meanwhile, a market’s scale and depth are
the most important market characteristics governing an issuer’s choice of market. Therefore, local markets will need to achieve
greater depth if they are to attract bond issuances. (3 tables, 6 figures, references)

World Banking Abstracts, vol. 34, no. 4, 2017, Page 254

797/34
The market for corporate bonds in the low-interest-rate environment
Deutsche Bundesbank Monthly Report (Germany), vol. 69, no. 7 (July 2017), pp. 17-32

The market for corporate bonds across the euro-zone has experienced considerable shifts in demand, supply and yield since 2011.
Supply has increased markedly as companies have replaced bank loans with bonds. At the same time, firms have exploited the low
interest rate environment to issue debt in unprecedented volume. Low interest rates have also driven a search for yield among
investors who have switched into higher-yielding corporate bonds. Demand has been boosted by the Eurosystem’s corporate sector
purchase programme. Despite the sizeable increase in supply, demand has been such that yields have fallen significantly, albeit that
there have been three abrupt temporary increases in yield since 2011. Worryingly, it is apparent that investors are not
discriminating between the risk posed by individual bonds or industry sectors. Therefore, this could have dire consequences when
there is a reassessment of corporate bonds in future.

B4 BILLS AND NOTES

798/34
Do lenders really need promissory notes?
Jordan, H.P. and Cianciotti, A.C.
Secured Lender (USA), vol. 73, no. 3 (April 2017), pp. 30-34

There was a time when lenders were heavily reliant on promissory notes in commercial loan transactions but their use has declined
markedly since the late twentieth century. The authors put the benefits of promissory notes into a historical context and explain
how regulatory amendments and changes to the law have eroded their benefits. Indeed, in the current legal environment it is
difficult to justify the ongoing use of promissory notes.

B5 EQUITIES

799/34***
Japanese private equity: at a turning point?
Palma, S.
Banker, The (UK), vol. 167, no. 1097 (June 2017), p. 53

Japan’s private equity market is small compared to that of the US or UK and makes only a very limited contribution to the
country’s GDP but this now looks set to change. Private equity was perceived negatively in Japan for many years but companies
are now approaching the sector having been starved of funding by the country’s banks. The volume of mergers and acquisitions in
Japan is considerably lower than in other developed nations but the market has more than trebled in size since the late-1990s. In a
negative interest rate environment, companies can no-longer rely on cost-cutting measures and must instead contemplate merging
business portfolios or divesting non-core businesses. Private equity is well-positioned to help with these developments and is also
realising new opportunities in businesses that serve the ageing population and by entering into collaborations with banks. Pension
funds are also turning to private equity in their search for yield .

800/34
Against tracker funds
Dillow, C.
Investors Chronicle (UK), vol. 200, no. 2547 (12 May 2017), pp. 16-17

Investors are increasingly shifting money out of actively managed investment funds and instead opting for index trackers. There
are good reasons for doing so but it is unlikely to be wise to exclusively hold tracker funds. One reason for this is that GDP growth
is only weakly correlated with stock market returns. Creative destruction can have a detrimental effect on incumbent listed firms
while benefiting those that are not listed. Consequently, there is a case for investing in private equity because it is unlisted firms
that will generate future growth. Other problems with index trackers are that they assume growth is independent of the size of a
company and they mistakenly believe that there is a sizeable equity risk premium. (1 figure)

World Banking Abstracts, vol. 34, no. 4, 2017, Page 255

801/34
Long-term risks
Dillow, C.
Investors Chronicle (UK), vol. 200, no. 2554 (30 June 2017), pp. 16-17

There is a widely-held belief that equities are a safe long-term investment but the reality is that shares are riskier investments than
most people realise. Data for UK share prices since 1700 reveal that after adjusting for inflation, share prices rise by an average of
just 1.1 per cent each year with a standard deviation of 15.4 percentage points. This means that in any ten-year period since 1700,
there was a forty per cent chance that prices would fall. People have unrealistic expectations about how the stock market will
perform because of the sharp rise in share prices witnessed since the 1970s. This pattern is unrepresentative of the history of share
prices but it has shaped attitudes in our formative years. The reality is that annual GDP growth averaged just 0.6 per cent between
1700 and 1939 and it may well be the case that the secular stagnation currently being witnessed is actually a reversion to normal
growth. (1 figure)

B6 FUTURES, OPTIONS AND SWAPS

802/34
Tail wags dog: intraday price discovery in VIX markets
Bollen, N.P.B. et al.
Journal of Futures Markets (USA), vol. 37, no. 5 (May 2017), pp. 431-51

Daily open interest in volatility contracts has grown markedly since the turn of the millennium and now measures in the tens of
billions of dollars. As the market continues to grow, there is a pressing need to better understand price discovery as well as the
supply and demand dynamics of the various volatility derivative markets. Some, but not all, of the price relations are influenced by
arbitrage. Furthermore, it is confirmed that whereas changes in the market volatility index used to lead volatility index futures price
changes, it is now volatility index futures that lead. (4 tables, 6 figures, references)

803/34
Margin benefits
International Financial Law Review (UK), vol. 36, no. 5 (June 2017), pp. 87-89

Not all derivatives transactions are required to pass through clearing but in practice the logic of clearing obligation dictates that
uncleared transactions are frowned upon. This report compares the margin rules applied by the authorities in Hong Kong and
Singapore in a bid to establish which set of rules financial institutions should opt for. Margining incurs real business costs and it is
unlikely that a bank would choose to book their over-the-counter derivatives trades in both jurisdictions.

804/34
Equity option implied probability of default and equity recovery rate
Chang, Y. and Orosi, G.
Journal of Futures Markets (USA), vol. 37, no. 6 (June 2017), pp. 599-613

Aware of the relationship between equity option prices and the probability that a company will default, the authors set out to
demonstrate that when there are expectations of equity recovery, standard methods that assume there will be no equity recovery at
default fail to accurately capture the option-implied probability of default. A new method is proposed that utilises option prices to
identify companies with a positive expected equity recovery. In addition, a new approach is devised for estimating the probability
of default based on option prices which takes positive equity recovery into account. Finally, this new methodology is tested using
data for US financial institutions during the credit crisis. (2 tables, 4 figures, references)

World Banking Abstracts, vol. 34, no. 4, 2017, Page 256

805/34
Anchoring and probability weighting in option prices
DeLisle, R.J. et al.
Journal of Futures Markets (USA), vol. 37, no. 6 (June 2017), pp. 614-38

Empirical research has confirmed that humans are unlikely to accurately weight unlikely events. People are also prone to anchoring
bias whereby they struggle to adjust their beliefs away from certain anchor points. This paper presents evidence that both of these
phenomena are evident in the equity option market and that they are responsible for the inefficient pricing of put options for
companies with unusually high or low implied volatilities. (9 tables, 1 figure, references)

B7 FOREIGN EXCHANGE AND EUROCURRENCIES

806/34***
A sea change in payments?
Graham, J.
Chartered Banker (UK), (February/March 2017), pp. 30-32

Digital currencies such as Bitcoin have been circulating for several years but now a number of the world’s central banks are
contemplating issuing their own digital currencies. Central bank-issued digital currencies could benefit banks in terms of reducing
the cost of providing transaction services, with further cost savings to be realised from distributed ledger technology. Banks would
also benefit from a reduction in counterparty risk, thereby freeing up sizeable sums of money to be deployed elsewhere. Meanwhile,
customers stand to benefit from settlement systems that operate around the clock as well as greater competition in the market for
deposit accounts and the rapid adoption of innovative technologies.

807/34
The volatility of exchange rates and the non-normality of stock returns
Blau, B.M.
Journal of Economics and Business (USA), vol. 91 (May/June 2017), pp. 41-52

A series of tests is performed in order test what effect exchange rate volatility has on the kurtosis and skewness of stock returns.
The results indicate that an increase in exchange rate volatility is associated with additional kurtosis and more negative skewness.
Analysis of the implementation of the euro currency reveals that the single currency had a stabilising effect on exchange rates
around the world and also helped to reduce the level of kurtosis while increasing the skewness of stock returns. (7 tables,
references)

808/34***
Central bank governors welcome global code of conduct for currency markets
Financial Regulatory Briefing (UK), (June 2017), p. 6

After two years of collaboration between central banks and the private sector, the FX Global Code has been agreed for the foreign
exchange market covering risk management, ethics, execution, governance, information sharing, compliance, confirmation and
settlement. As such, the Code can be regarded as a guide for best practice and while it is voluntary, central banks have expressed
their commitment to it and recognise the valuable role that it will play in delivering a fair, robust and transparent market.

809/34
Minting the future
Cohen, L. and Shapiro, G.
International Financial Law Review (UK), vol. 36, no. 6 (July/August 2017), pp. 62-66

Growing demand for cryptocurrencies such as Bitcoin, Ether and Zcash has triggered a surge in initial coin offerings and token
sales. For instance, Bancor’s Ethereum-based Bancor Network Token raised in excess of $150 million in just three hours in June
2017. Legal uncertainties persist, however, and some market commentators are concerned that token sales are looking increasingly
like Ponzi schemes. This report gives thought to how these tokens are treated in contract law, corporate law and commercial law.
More specifically, consideration is given to whether the tokens can be considered securities; whether specific terms and conditions
should accompany their sale and use; and who can be held responsible in the event that a contract is breached.

World Banking Abstracts, vol. 34, no. 4, 2017, Page 257

810/34
A review of the work of the London Foreign Exchange Joint Standing Committee in 2016
Bank of England Quarterly Bulletin, no. 2 (2017), pp. 140-43

The London Foreign Exchange Joint Standing Committee was formed in 1973 and provides an opportunity for market participants,
public authorities and infrastructure providers to discuss issues that are pertinent to the UK wholesale foreign exchange market.
The work of the Committee over the course of 2016 is summarised and details are provided of the semi-annual survey of the 29
most active participants in the UK foreign exchange market performed in April and October 2016. Turnover fell in 2015 but was
up three per cent in the year to October 2016. However, this was some way behind the six per cent improvement witnessed
elsewhere in the world. Despite this, the UK continues to account for 53 per cent of global foreign exchange turnover. (1 table, 4
figures)

811/34
An exorbitant privilege in the first age of international financial integration
van Hombeeck, C.E.
Bank of England Working Papers, no. 668 (August 2017), pp. 1-41

As the issuer of the global reserve currency, the US was able to benefit from a positive returns differential on net foreign assets in
the latter part of the twentieth century. Between 1871 and 1914, sterling was the global reserve currency and this study investigates
whether Great Britain enjoyed similar benefits during this period. Microdata for railway and government financial securities are
used to estimate the international investment position of Great Britain and it is calculated that the country benefited from an
average privilege equivalent to 8.3 per cent of GDP. As such, this indicates that there is a privilege to being the issuer of the global
reserve currency and this is not a modern phenomenon exclusive to the US. (References)

B8 ORGANISED SECURITIES EXCHANGES

812/34
The curious case of Guotai Junan
Wright, C.
Euromoney (UK), vol. 48, no. 577 (May 2017), pp. 44-45

When Guotai Junan Securities listed in Hong Kong on 11 April 2017, the $2.1 billion deal was unusual because the Chinese
brokerage firm opted for a single offer price instead of the standard price-range book building process. Hong Kong had more
listings than any other exchange in 2016 but fifty of the 110 listings were still below their offer price as of April 2017 despite the
market having risen by fifteen per cent over the same period. While it is still too early to conclude whether this new approach has
been successful, the initial signs are encouraging and it is likely to be a step in the right direction if not the ideal cure-all. (1 figure)

813/34
Saudi Arabia moves to attract foreign capital
Holmey, O.
Euromoney (UK), vol. 48, no. 577 (May 2017), p. 20

The Saudi Stock Exchange has transitioned to a T+2 settlement cycle for all listed securities and it is hoped that the move will help
to attract foreign investors who were previously deterred by the need to settle transactions immediately. Efforts to open Tadawul to
international investors began in mid-2015 and while the new settlement rule is only technical in nature, its impact could be
significant because the lack of T+2 settlement was one of the few remaining hurdles to inclusion in the MSCI Emerging Markets
index. Inclusion in the index would be particularly welcome because it would trigger an influx of foreign investment at a time of
depressed oil prices.

World Banking Abstracts, vol. 34, no. 4, 2017, Page 258

814/34
Picking up speed
Crabb, J.
International Financial Law Review (UK), vol. 36, no. 5 (June 2017), pp. 14-15

There were no initial public offerings (IPOs) in the US during January 2016 and listings in the first half of the year were sixty per
cent lower than in the previous year. IPO rates were up markedly in 2017, helped by the $3.4 billion listing of Snap, but still a long
way off pre-crisis levels. Against this background, market participants were polled in order to ascertain what they thought could be
done to facilitate a further increase in IPOs. 57 per cent of respondents suggested revisiting the Jumpstart Our Business Startups
Act. This is perhaps unsurprising given the current administration’s stated intention to relax regulations. What was unanticipated
was that 29 per cent of respondents opted for ‘other’ in the poll. Many of these were concerned by the number of companies
exiting the market and stated that rules governing public companies should be made less restrictive so as to encourage more private
companies to go down that route. (1 figure)

815/34
Listing in a Brexit era
Le Poidevin, F.
International Financial Law Review (UK), vol. 36, no. 6 (July/August 2017), pp. 44-45

Channel Islands-based The International Stock Exchange (TISE) has witnessed remarkable growth since 2015 with 502 new listed
securities in 2016, up nineteen per cent on the previous year. A further 270 new listed securities were added in the first five months
of 2017. The TISE provides an alternative stock market option for UK small and medium sized enterprises seeking to raise capital.
Much of the new business is debt securities but there has also been growing interest from investment vehicles. What is striking is
the spike in interest since the UK voted to leave the EU. TISE is now an especially attractive venue given that it is based outside
the EU, can accept EU directives if it wishes to do so, and is free to regulate according to the type of product. Crucially, TISE
offers companies stability and certainty at a time of political turmoil throughout much of Europe and beyond.

816/34
New money
Bali, M.
International Financial Law Review (UK), vol. 36, no. 6 (July/August 2017), pp. 59-61

The majority of firms listing on NASDAQ are European biopharmaceutical companies. A listing on NASDAQ is attractive
because it affords access to the US market where the prices of medicines are almost entirely unregulated. In addition, a listing helps
to raise the profile of the company in the US, grants access to traditionally more risk-seeking investors, and helps to raise funds for
costly clinical trials. This article starts by profiling the European companies that listed on NASDAQ between 2014 and 2016,
before describing the listing process and the regulatory requirements.

817/34
Credit ratings of domestic and global agencies: what drives the differences in China and how are they priced?
Jiang, X. and Packer, F.
Bank for International Settlements Working Papers, no. 648 (June 2017), pp. 1-33

An increasing number of Chinese firms have credit ratings issued by both domestic and international rating agencies. Studying the
ratings assigned to these firms, it is apparent that domestic agencies typically award ratings that are between six and seven notches
higher than those assigned by foreign agencies. By testing the determinants of ratings, the authors are able to reveal that domestic
agencies assign more weight to asset size as a positive factor, whereas foreign rating agencies assign more weight to state-
ownership and profitability as positive factors. Conversely, gearing is assigned more weight as a negative factor by foreign
agencies. (15 tables, 1 figure, references)

World Banking Abstracts, vol. 34, no. 4, 2017, Page 259

818/34
Does the stock market boost firm innovation? Evidence from Chinese firms
He, H. et al.
International Monetary Fund Working Papers, vol. 17, no. 147 (April 2017), pp. 1-55

Initial public offerings (IPOs) are shown to deliver a significant boost to firm innovation in this study of Chinese companies taking
in the period 1998-2007. Not only do IPOs result in an increase in the quantity of innovation activity, it is also confirmed that they
enhance the quality of innovation. Crucially, there is also evidence that IPOs encourage firms to pursue innovation in areas that are
beyond their core business. Moreover, IPOs help companies to retain in-house inventors and also attract additional inventors. This
boost in innovation is found to deliver long-term benefits for companies in the form of an increase in Tobin’s Q. (9 tables, 2 figures,
references)

819/34
The pitch rather than the pit: investor inattention, trading activity, and FIFA World Cup matches
Ehrmann, M. and Jansen, D.J.
Journal of Money, Credit and Banking (USA), vol. 49, no. 4 (June 2017), pp. 807-21

Trading on fifteen stock markets around the world is analysed during the 2010 and 2014 FIFA World Cups in order to clarify
whether there is any evidence of investor inattention during sporting events. When the national team is playing a match, volumes
traded on the stock market can decline by as much as 48 per cent and it appears that local stock prices decouple from developments
in the global economy. (5 tables, 1 figure, references)

820/34
Do individual short-sellers make money? Evidence from Korea
Wang, S.F. et al.
Journal of Banking and Finance (Netherlands), vol. 79 (June 2017), pp. 159-72

The profitability of individual short-sellers in the Korean stock market is calculated between August 2007 and May 2010. The
average profit equates to US$24.40 per trade, per hour. However, profitability declines as the hours-to-cover increases. Those
traders who short sell a large number of firms generate larger profits than those who short sell relatively few companies. Finally, it
is posited that traders are able to profit from short selling because they successfully exploit short-term price reversals. (10 tables, 1
figure, references)

B9 FINANCIAL CENTRES

821/34***
Leaving London?
Linhardt, S.
Banker, The (UK), vol. 167, no. 1097 (June 2017), pp. 20-25

As the UK prepares to leave the EU, financial centres throughout mainland Europe are vying to attract banks that are keen to
relocate from the UK to the EU. After decades of the EC attempting to integrate the continent’s diverse economies, the reality is
that the differences in terms of tax, insolvency regimes and labour law between the member countries remain considerable. Having
spoken with financial experts and investors, the author presents their opinions on the challenges banks will face if they consider
relocating across Europe. The focus here is on legal issues surrounding employment law, taxation and solvency regimes but it
would be naive to overlook the importance of soft factors such as schools, culture, entertainment and the property market.
Ultimately, while a small number of financial institutions will need to be located within the EU, for others the attraction of London
or Zurich will be too much to resist.

World Banking Abstracts, vol. 34, no. 4, 2017, Page 260